The Board says it is issuing the
update primarily to improve the presentation of net periodic pension
cost and net periodic post-retirement benefit cost. It notes that Topic
715, Compensation—Retirement Benefits, does not prescribe where the
amount of net benefit cost should be presented in an employer’s income
statement and does not require entities to disclose by line item the
amount of net benefit cost that is included in the income statement or
capitalized in assets.

FASB explains that many stakeholders
observed that the presentation of defined benefit cost on a net basis
combines elements that are heterogeneous. As such, these stakeholders
stated that the current presentation requirement is less transparent,
reduces the decision usefulness of the financial information, and
requires users to incur greater costs in analyzing financial statements.

The amendments in the update require that an employer report the
service cost component in the same line item or items as other
compensation costs arising from services rendered by the pertinent
employees during the period. The other components of net benefit cost as
defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be
presented in the income statement separately from the service cost
component and outside a subtotal of income from operations, if one is
presented. If a separate line item or items are used to present the
other components of net benefit cost, that line item or items must be
appropriately described.

If a separate line item or items are not
used, the line item or items used in the income statement to present
the other components of net benefit cost must be disclosed. The
amendments in the update also allow only the service cost component to
be eligible for capitalization when applicable (for example, as a cost
of internally manufactured inventory or a self-constructed asset).

The
amendments require that an employer disaggregate the service cost
component from the other components of net benefit cost. The amendments
also provide explicit guidance on how to present the service cost
component and the other components of net benefit cost in the income
statement and allow only the service cost component of net benefit cost
to be eligible for capitalization.

FASB says the amendments
improve the consistency, transparency, and usefulness of financial
information to users that have communicated that the service cost
component generally is analyzed differently from the other components of
net benefit cost.

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